Most large companies have sourcing departments that are responsible for negotiating and entering into contracts with vendors to procure goods and services needed by the firm to perform its operations. Currently there are few key metrics used by sourcing departments to measure their performance. Two sourcing metrics most commonly used are “hard savings” and “cost avoidance.” Hard savings represents reductions in the baseline expense run-rate achieved through sourcing deals that decrease unit prices and/or business decisions to decrease consumption. Cost avoidance represents the financial impact of actions taken by the sourcing department to reduce potential run-rate increases through negotiation of contractual prices that are below market prices. Cost avoidance is traditionally subordinated in importance to hard savings because cost avoidance is not fully derived from data recorded in the general ledger of the firm and its sub-ledgers; nor is cost avoidance directly observable through changes in the expense run-rate. Currently, therefore, sourcing departments can be incented to outperform on deals that offer the potential to generate hard savings, possibly at the expense of other deals with significant cost savings, even though the two metrics should be on equal footing from the perspective of managerial emphasis, because one dollar of cost avoidance has the equivalent economic impact of one dollar of hard savings. The lost opportunity for cost avoidance may far outweigh the hard savings, with negative consequences for the firm's pre-tax profit.